A few topics our newsletter touches on this month:
- Our Thoughts: Market Volatility and Spotlight on Oil
- RBC’s Industries in Motion podcast
- Other Links: Disruptors podcast, Global Insight (monthly), RBC Race for the Kids update
Our Thoughts: Market Volatility and Spotlight on Oil
Global equity markets have given back some or most of their year-to-date gains so far while government bond yields have moved noticeably higher in recent weeks. The market action can be attributed to mixed economic signals and messaging from central banks. On the latter, the Bank of Canada and U.S. Federal Reserve both decided to hold rates steady at recent policy meetings, while the European Central Bank raised rates yet again. All three emphasized the need to tread carefully as they try to ensure interest rates stay high enough for long enough to stem inflationary pressures. Recent inflation readings in Canada and the US suggest pricing pressures have begun to perk up, driven in part by oil prices. The net result of all of this has been higher bond yields and lower equity prices. As is normally the case with solid dividend growth stocks, dividend income remains a key source of ballast. Repeating a cycle we are becoming familiar with, drama south of the border around the debt ceiling negotiations caused turmoil in equity markets – although an extension agreement was reached. We discuss oil in more detail below.
Crude oil and refined products like gasoline, diesel, and jet fuel have all been on a sharp upward trajectory since June and are trading near highs for the year. Global demand and supply have both been responsible for the price gains in recent months.
Historically, the supply and demand imbalances that have created elevated oil prices often resolved themselves over time. Demand has typically deteriorated when prices are elevated as consumers look to moderate the impact of higher costs. Meanwhile, oil producers have predictably raised production at more profitable price levels in the past, leading to increased global supply. Lower demand, increased supply, or a combination of both have driven prices lower in prior periods.
We expect global oil demand to moderate over time as higher prices and slowing economic activity eventually take their toll. We have less conviction on the supply side where there has been a notable shift in recent years with oil companies demonstrating more discipline and patience. They have been less willing to raise production at higher prices and have clearly prioritized profitability over revenue growth. Moreover, major producers like Saudi Arabia and Russia appear intent on maintaining elevated prices for the foreseeable future, although predicting their approach from one year to the next has been fraught with challenges.
By the numbers (September): All major markets were down measured in local currency. The TSX was down 3.3% and the S&P 500 was down 4.8% in U.S. dollars. The Europe, Australia & Far East index (EAFE) was down 3.2%, while the Emerging Markets index was down 2.3%. The Canadian bond universe was down 2.6% as yields rose further.
Interesting Listening/Reading
- The 10-Minute Take – podcast from RBC Economics, latest episodes are on Canadian indebtedness and the “summer of strikes”
- We mentioned the Blackberry film’s great critical reception last week – it is also being turned into a CBC mini-series (3 parts including extended footage beyond what was in theatrical release). Launches November 9th, 2023.
- Disruptors - A dynamic ~30 min RBC podcast co-hosted by John Stackhouse and Trinh Theresa Do about reimagining Canada’s economy in a time of unprecedented change.
- To check out our Global Insight Monthly for September find the link here.
Some snapshots from the RBC Race for the Kids on Sept 24th.
Peter & Sarah from the team and their families participated.
A total of $528,700 was raised to support mental health programs at CHEO
Regards,
Mark, Peter, Sarah, Corinne and Nathalie
Gallivan Wealth Management
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